06/28/2019

Compensation Singularities

I’ll confess that I had not heard of it until quite recently when one of my clients made me aware of the concept. Frankly, I’m surprised that I hadn’t learned of it sooner because it appears to be an enormously versatile rule that can tremendously streamline the market-pricing process.

The client – one of those Washington, DC inside-the-Beltway agencies – was greatly concerned that their latest salary survey analysis was obviously wrong and needed to be fixed immediately. It seems that the agency had just lost a senior cybersecurity executive to a private sector company which had reportedly offered the individual a salary of $600K. (That was according to Fred, who had heard it from Nancy, who had overhead Susan talking about it … but, I’ll put the provenance aside.) As a result, the client knew, empirically, and unequivocally, that the going market rate for all cybersecurity professionals was measured in the multi-hundreds of thousands of dollars per annum range, significantly above the ranges indicated in the salary surveys. It turns out the client had applied the Compensation Singularity Rule.

The Compensation Singularity Rule (CSR) states, in part:

A singular compensation data point is vastly more reliable and is far more effective for determining true market rates than hundreds of thousands of compensation survey data points, provided that the singular data point is sufficiently large compared to the median survey rate. A singular compensation data point that is near, or below, the median survey rate (some sources use P75 vice P50) must be considered an outlier, clearly spurious data.

A major part of the versatility of the Compensation Singularity Rule lies in the fact that only the magnitude of the singular data point needs to be considered; one need not be concerned with job location, level, industry, duties, or other tedious aspects of job matching in order to apply the CSR. The Rule can also be used to conclusively demonstrate that compensation is the sole determinant of what makes a job offer competitive (though that is a subject for a different post).

Now, I’ll admit that I had to look the rule up. WorldatWork hadn’t started teaching it when I took my last course with them, but I’m sure that they’ll have to start soon, based on the frequency at which the Rule seems to be used and cited. Apparently, it is already widely taught in some of the most prestigious and venerated institutes of higher education including YouTube, Instagram, and WhatsApp.

As wizened compensation professionals I’m sure that you’ve realized that I am being tongue-in-cheek; you have all likely faced this phenomenon in the past. It seems that no matter how many reputable surveys you have used, how many curated data sets you have drawn upon, or how meticulous your analysis, the Compensation Singularity Rule will always garner the attention of employees and executives. Compensation singularities seem to have a sort of cognitive gravity well.

Unfortunately, rational discussions about job/industry matching, the nature of right-skewed salary distributions, sample sizes, statistically significant data sets, etc., don’t seem to help in these cases. Pointing out the obvious – that if the going market rate was truly at the singularity rate, every other employee would have already left for those salaries, too – can end the immediate compensation hyperventilation, but seems to leave people with the nagging suspicion that you have practiced some form of logic legerdemain. You can free the person from the gravity well, but the effects still linger.

So, what techniques have you found to most effectively address compensation singularities?

Joe Thompson, CCP, CCMP, is currently employed as a Human Capital Strategic Consultant at Booz Allen Hamilton where he assists clients with a wide range of human capital challenges. He has delivered human capital solutions across the talent management lifecycle including recruitment, job analysis, hiring, compensation and incentives, workforce planning, HR policy, attrition, performance management, change management, cyber human capital, and human capital program design, implementation, and evaluation. Joe has worked in the area of compensation for 10 years and, prior to Booz Allen, he has worked in the U.S. Intelligence Community and in the U.S. Navy.

Comments

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This was good, especially since I realized that through a semi-concerted effort (which includes, but is not limited to: nudging, shaming, cajoling, encouraging and carping), I may have played a small part in this posting gaining forward momentum (or is it inertia).

I'll acknowledge that I literally laughed out loud when I read the phrase, " . . . cognitive gravity well" - for both the appropriateness as well as for the visual image that it prompted. And no really noteworthy article would be without the use of the word, legerdemain - which always requires me to break out the dictionary to refresh myself on the meaning. An enthusiastic two thumbs-up, Joe.

Encountered that phenomenon frequently, particularly in "reasonable compensation" cases where the tax-deductibility of exec comp to shareholder/executives is challenged by the IRS. The taxpayer allusion to a cocktail party claim is expected to outweigh all statistically validated comprehensive relevant survey data even though it exceeds the 99th percentile by orders of magnitude.

Parallel principles include

* a classic Brennan's Law: "Everyone wants to be paid exactly what they are worth, as long as it's more than what they earn now."

* the "Bobby Bonds Ratchet Syndrome": whoever got the most before establishes the new earnings floor for me.